Next week Corgentum will be hosting the first session in our 2014 webinar series – Performing Operational Due Diligence on Hedge Fund Offshore Directors. There is still time to register for the webinar. To signup click here!
The role of hedge fund offshore directors continues to be a contentious one for investors and hedge funds alike. One of the most common investor questions relating to directors is to determine how many different boards fund’s sit on. This question has become heatedly discussed in many popular hedge fund jurisdictions including the Cayman Islands. The answer unfortunately is not always easy to determine. There are a variety of approaches investors take in this areas include:
- Asking the hedge fund (who may or may not know the answer)
- Asking the directors themselves (who may or may not want to reveal this information)
- Having investors attempt to cobble together a list of directorships
Also several data vendors have cropped up selling databases which claim to have compiled databases that seek to answer this question. While the intentions of such vendors is well placed, it is typically based primarily on public filings. The nature of these disclosures with regards to hedge fund directors is incomplete at best. Furthermore, such databases do not necessarily take into account director turnover and the shifting of responsibilities within multiple director firms. One of the biggest investor complaints against such databases however, is that they are simply compiling somewhat stale and incomplete data remotely rather than building it from an actual operational due diligence process which would involve direct interaction with the fund manager and the director.
This brings us to the second common question involved in analyzing hedge fund offshore directors. Once an investor makes an attempt to determine how many directorships a particular director holds, then of course it makes sense to analyze the so-called quality of the director themselves. Said another way, does it matter if a director sits on one or 100 boards if they are not qualified to be a director in the first place? This can include an analysis of their educational background and relevant work experience. Of course having a director who has a background that may actually add value to the board of the hedge fund strategy they are analyzing couldn’t hurt either.
As part of this analysis many investor’s struggle with the question of whether to perform background investigations on directors. Have you ever performed such an investigation on a director? If yes, was it sufficiently incorporated into the operational due diligence process? Also, how detailed was the investigation? If not, are you confident that you are not missing anything?
The list of analysis techniques which investors can utilize beyond the initial steps outlined above can include a variety of items – many of which will be covered in Corgentum’s upcoming webinar. The webinar will be features speakers Jason Scharfman, Managing Partner, Corgentum Consulting and John Ackerley, Director, Carne Global Financial Services (Cayman) Limited.